A bad credit makes it tough for you to get a car loan to be approved. Even if you have a well-paying, stable job if you have a bad credit, this will have a negative impact when you apply for loans.
If you have a history of defaulted payments, repossession or bankruptcy, it makes the money lenders, lending companies, and any financial institutions very cautious while processing your loans.
This is because of the default on your monthly payments, they may have to repossess your car which is time-consuming and costly for them.
But that doesn’t mean that if you have a bad credit, you cannot buy a new car or get your loan approved.
However, you must be prepared to spend more money and shop differently. Being prepared beforehand and being informed will help you with taking the right decisions and you can avoid getting duped.
Without further ado, here are some helpful tips for buying cars with bad credit that you must keep in mind:
1. Check Your Credit Report– As soon as you start planning to buy a caror apply for a loan, review your credit report thoroughly and try to improve it as much as you can.
A good credit report improves your rate of approval when getting a loan. Improving your credit means clearing all the outstanding bills, pending payments, and minimizing credit card discrepancies.
2. Check the Current Interest Rates– A quick online search will show you the current status of interest rates that would be applicable to your financial capacity. If you have a bad credit report, your interest rates will be higher but the life of the loan will be shorter.
Be wary of loans having interest rates that are double the current rate. This is because the rates will strongly affect your monthly installments(monthly payments) and will also bring down the rate of the car you can afford to buy.
3. Avoid and/or Be Aware of Additional Expenditures – As difficult as it might be, try to minimize or prevent any additional expenditure before you apply for a loan. With that being said, you must always make payments on time.
Do not make any major purchases that you cannot afford to pay. Most importantly, do not apply for new credit cards as this will also affect your credit score.
4. Get A Pre-sanction – A pre-sanction from your bank or credit union society will give you a clear figure from which you can work out with other modalities.
Contact the agency from which you have decided to get a loan and ask them for a pre-sanction letter. If they decline, find a car dealer that can help you get in touch with an agent who deals in such matters.
5. Make A Bigger Down Payment – If you have money in hand, you can opt for a bigger down payment at the time of purchasing acar. This way, your loan amount will be lesser, which means there will be fewer monthly installments and you could even choose a bigger car!
6. Avoid Any Car Accessories – If you are buying a car on bad credit, you already have a lesser loan amount which is associated with a higher interest rate. Skip the extra features and accessories that come with the carsuch as leather upholstery, built-in speaker system, car tint, and the like.
As much as possible, we advise you to buy only the basic version. You will be able to save money this way and there will be lower chances to ruin your credit score. After all, you can always get your car accessorized after you have finished the loan term, so don’t rush.
7. Read The Documents Carefully – This is the most important step when buying a car. Remember that your hard-earnedmoney is at stake, so however confusing it may seem to you, you must read all the terms and conditions carefully.
Don’t believe everything that the car dealer says. Make sure whatever he says is written in the documents you have.
8. Get a Certified True Copy of the Written Agreement–You must always prevent yourself from any nature of verbal agreement regarding your loan.Mostly, it is seen that financial managers wind up offering false promises.
Even the car salesmen are often trained to elaborate crucial details about the car buying process with bad credit. So car buyers, always be conscious and get everything in writing before you proceed to buy any cars with bad credit.
You have to get a certified true copy of the written agreement yourself.After all, getting involved with cars with bad credit are indeed a hazardous agreement. Occasionally it occurs to clients with unattractively low credit score, this is because these clients always tend to pay excessively for the car or are not eligible enough to afford a loan.
9. Finalize the Loan Rates First –You have to finalize the standard rate of interest for the credit bracket applicable. Most of the time, car dealers and salesmen inflate the rate of interest so that they can earn additional money(extra commission).
With that being said, they will even attempt to convince you by saying that they are doing their best to assist and/or help you in purchasing your dream car in spite of having a low credit score. Many car buyers fall prey to these tactical moves, do not be one of them.
Remember that the rate of interest is equally negotiable resembling that of the price of your car. Therefore, don’t be frightened to negotiate and obtain the deserving value of the cars with bad credit.
10. Compute and Compare the Rates of Different Life of the Loan –Agreeing to purchase a car winning a loan coming with a pre-calculated rate of interest is a big no-no. People with bad credit score frequently get inclined to select pre-calculated loans and fall short to comprehend that the rate of interest is extended for a maximum of half the entire life of the loan.
In the final analysis, remember to always plan and budget carefully. You have to set your goals accordingly and try to stay away from getting a bad credit. Nonetheless, there are still car dealers out there who openly accept clients who wish to buy cars with bad credit.